1. Field of the Invention
The present invention relates to an information processing system and method for determining and maintaining tax-related information among a plurality of business enterprises.
2. Related Art
Previously, the tax data of a company was typically organized in a “stovepipe” configuration, with U.S., state, and foreign data stored in separate “silos” that prevented its use for anything other than compliance. Because the data was stored in an unstructured format, it could not be re-used to support the planning needs of the business. This data had to be re-worked for each planning project and each time managers tried to analyze the tax effects of a changing business environment.
The drawbacks of prior methods are shown below:
1. Tax data used to prepare the financial statements of the company did not serve any other purpose. A great deal of time and effort was spent gathering data that was used to complete the tax footnote section of the financial statements under Generally Accepted Accounting Principles (“GAAP”) or International Accounting Standards (“IAS”), but was not used again because it was difficult to retrieve and re-use.
2. The most common way that companies prepared the tax accounts required in their financial statements was to create complex spreadsheets that were organized in highly individualistic ways. Typically, the referencing system was the creation of a single person who was responsible for one outcome. While spreadsheets could be linked to each other, the maintenance of these links was a labor-intensive process. When references shifted to deal with changes in the business, such as new units or new taxes, the fragile referencing system broke down and workers spent a great deal of time managing their spreadsheets and reconciling them to each other.
3. The manner in which this tax data was stored was very dependent upon the author of each spreadsheet. As a result, employee turnover could create serious gaps in the tax history of the business; each new employee had to re-create the tax data in their own style with a new unique system of references. In practice, each old system of unstructured spreadsheets was replaced by a new unstructured system every time an employee turned over. This made the comparison of tax results over time a difficult task.
4. The tax planners for the company were often lawyers, rather than accountants, and were not familiar enough with accounting conventions to use this information stored in spreadsheets without support from the accounting staff. They would generally request this data on an ad hoc basis using accountants to test out various tax planning strategies and structures. This was a highly inefficient process fraught with misunderstandings and judgment errors.
5. Comparability of tax data was difficult from year to year and from entity to entity because each year and each entity could be prepared by a different person using a unique referencing system. Sometimes the same person would use a different referencing system to accommodate a particular set of facts unique to that time period or that entity.
6. Since there was not a single system in which to store the data, it was also gathered in a number of different ways: domestic information was often pulled from general ledgers in a manual process and then loaded into spreadsheets. Foreign information for each local entity was pulled from local general ledgers, tax computations were made by hand and then the information was compiled into spreadsheets which were sent to a corporate office for re-entry into another spreadsheet for final consolidation. The process was difficult to improve because the data gathering, the computations and the final consolidation all took place in an unstructured environment with multiple points of data entry.
7. At the final level of consolidation, the tax results of the company needed to be compared to other businesses for purposes of benchmarking This was an inefficient process due to the lack of standard analytical tools and the lack of a standard way to exchange data in environments that did not share a common platform. These deficiencies prevented analysts inside and outside the company from comparing the tax accounts of one firm to another firm.
8. When the business prepared its tax returns, it was required to revisit this process in a completely different light. The estimates used in the preparation of the financial statements were not allowed, meaning that the company had to re-do the financial statement calculations using actual data rather than estimates. Additional detail was also required to complete all of the supporting statements in the tax return. These computations were typically stored in a database that had been written to support the U.S., state or foreign tax returns of the company and was separate from the database used to support the U.S., state and foreign tax provisions reported in the financial statements.
9. The transfer of data from legacy systems into either a structured or unstructured environment was complicated by the fact that each chart of accounts was different, reflecting the unique operating history of the business. The automation of this transfer by mapping each account was a laborious and time-consuming process that required a great deal of maintenance.
10. Comparability of tax data produced by the system with other business organizations for purposes of benchmarking and analysis was complicated by the unique referencing systems of each business.
To summarize, prior art methods require the use of multiple pools of data which could not be readily integrated and where data could not be re-used. The existing systems were held together by unstructured spreadsheets that were highly individualistic and required a great deal of maintenance. In this environment, comparability of internal data across legal entities or time periods was very uncertain; comparability with other companies was difficult because there were no standards. The data gathering process mirrored this inefficiency because units were required to report the same or similar data multiple times in a “stovepipe” environment.